HYBE acquires $78m stake in SM Entertainment from K-pop company’s founder Lee Soo Man

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Members of girl group Aespa participate in the 95th Annual Macy's Thanksgiving Day Parade on November 25, 2021 in New York City.

South Korea-based entertainment giant HYBE has increased its stake in rival K-Pop company SM Entertainment.

HYBE has announced in a regulatory filing that it is buying 869,948 shares in SM Entertainment, the home of K-Pop stars such as Aespa and NCT.

The value of the transaction, according to the filing, is 104.3 billion South Korea won, which converts to approximately $78 million at current exchange rates.

HYBE is buying the 869,948 shares in SM Entertainment from SM’s founder and former Chief Producer Lee Soo Man.

The sale marks Lee Soo Man’s divestment of his remaining shares in the company he founded, reports the Korea JoongAng Daily, an English-language daily published by Korea-based media company JoongAng Group, in association with The New York Times.

Korea JoongAng Daily reports that the 869,948 shares acquired by HYBE equates to a 3.64% stake in SM Entertainment and that HYBE is acquiring the shares for what it says is the predetermined price of 120,000 South Korea won each.

HYBE will own a 12.6% stake in SM Entertainment following the acquisition, which is expected to close on March 7.

News of HYBE’s new investment in SM arrives a year after a corporate battle for control of the latter company played out between Korea-based entertainment companies HYBE and Kakao Corp.

As reported by All K-Pop, HYBE’s acquisition of Lee Soo Man’s remaining shares honors the stock purchase rights included in the terms of a transaction from February 2023 when HYBE originally acquired a 14.8% stake in SM from SM’s founder, in a deal worth approximately USD $335 million.

HYBE is quoted by All K-Pop as stating that, “Lee Soo Man recently notified us of his intention to exercise his [put] options (stock purchase rights). We are simply fulfilling our end of the contract.”

After HYBE acquired that 14.8% stake in SM from the latter company’s founder in February last year, HYBE revealed that it planned to acquire an additional 25.2% of SM Entertainment’s shares – which would have taken HYBE’s total shareholding up to 40% – via a tender offer to SM’s minority shareholders.

HYBE’s takeover plan fell short, however, only managing to acquire an additional 0.98% stake in SM Entertainment, raising its ownership to 15.78% (including the 14.8% stake acquired in February 2023).

Kakao / Kakao Entertainment then launched its own tender offer for SM shareholders at a higher per-share price than HYBE’s bid.

Kakao had already agreed a deal to buy 9.05% of SM in February, via the purchase of bonds and newly-issued shares. However, Lee Soo Man successfully blocked this buyout attempt in a Seoul court via an injunction.

HYBE’s attempt to buy a 40% stake in SM was met with strong resistance from SM’s management. On March 12, HYBE ended its takeover attempt of SM.

The company said in March last year that it had pulled out of the race to take control of SM Entertainment “after observing that the market ha[d] been showing signs of overheating due to competition with both Kakao and Kakao Entertainment.”

By the end of March 2023, Kakao Corp. officially became the largest shareholder in SM Entertainment, increasing its stake in SM to 39.87% from the previous 4.9% after completing its tender offer for shares in the agency.

HYBE had initially planned to divest its entire 15.78% stake in SM, but remained a shareholder of SM with an 8.81% stake.

Kakao is listed as SM Entertainment’s largest shareholder on the company’s investor relations site, with a 39.87% stake in SM (as of September 30, 2023).

That 39.87% stake is split across Kakao Corp which owns 20.76% of SM Entertainment and Kakao’s Entertainment division Kakao Entertainment, which owns a 19.11% stake in SM.

HYBE’s annual revenues grew 22.6% YoY to 2.178 trillion South Korea Won last year. That total revenue haul for FY 2023 converts to USD $1.66 billion at the average annual exchange rate.

SM Entertainment reported a 3.4% YoY drop in revenue in the Q4 2023, to KRW 250 billion (USD $189.3 million at the average exchange rate for the quarter) from KRW 258.8 billion.

On a quarter-over-quarter basis, revenues were also down at SM Entertainment, 6.1% from KRW 266.3 billion won ($201.6 million) in Q3 2023, according to a presentation released last month.

In September 2023, SM Entertainment’s artists including Red Velvet and aespa, boy band TVXQ!, Super Junior, SHINee, EXO and others joined HYBE’s superfan platform Weverse.Music Business Worldwide

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